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Business News » Personal Finance News

Income tax returns (ITR): You do not have to pay TDS on FDs under this amount

If your bank has deducted the TDS from your interest income on FDs, then you can declare the deducted amount in your ITR filing form and the IT department will automatically refund your paid sum in your bank account.   

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Income tax returns (ITR): You do not have to pay TDS on FDs under this amount
Through Budget 2019, interim Finance Minister Piyush Goyal, has just given the good news on your fixed deposits - your TDS limit has been hiked. Photo: Reuters

Did you feel that your bank fixed deposits are not giving you hefty enough returns? Well this is understandable, because despite giving attractive interest rates on your investment in fixed deposits, yet the bank has to deduct some taxes from your gains. These taxes are in the form of tax deducted at source (TDS) and are levied on your interest income arising from bank deposits on an annual basis. It would not be wrong to say that, fixed deposits are among the most traditional format of investment in India, and also not the most preferable tool considering there are a host of schemes that give better returns. However, what will come as music to your ears is that this is set to change. Through Budget 2019, interim Finance Minister Piyush Goyal, has just given the good news on your fixed deposits - your TDS limit has been hiked.

In Budget 2019, Goyal announced that TDS deducted by banks has now been exempted to Rs 40,000 from previous Rs 10,000 on deposits.  Apart from FDs, this move will also help boost recurring deposits as well. 

Talking about the move, Rajnish Kumar, Chairman, SBI said, “Hiking the ceiling limit for TDS on bank deposits and small savings will act as a catalyst for this deposit segment by attracting the new depositors.”

Surely, this is a gateway for more deposits to the banks and more gains on interest for customers!

Firstly, you should remember that interest income on your bank deposits is fully taxable as it falls under ‘income from other sources’ section of a salaried employee.

How does TDS work on your fixed deposits? 

For instance, if a person, entity or in this case banks pay you, then that entity paying you will have to deduct a certain tax before giving you the net amount. This is how it works with interest income on FDs. The amount which is deducted by banks is paid to tax department. Then you add the amount in your income and adjust TDS in your final tax liability. 

Every year, banks deduct a TDS from your interest earned on FDs. So, if, let’s say, you have deposited Rs 1.5 lakh as FDs for a tenure of 5 years, each year a TDS will be deducted. 

#BudgetKiBaat | इस साल निफ्टी 10000 - 11800 के दायरे में रहेगा: राहुल अरोरा, CEO, निर्मल बंग इंस्टिट्यूशनल इक्विटीज@NirmalBang @AnilSinghviZEE pic.twitter.com/eumedJDuWF

— Zee Business (@ZeeBusiness) February 4, 2019

Let’s take an example!

Rajesh falls under the tax bracket 20%. He has opened 2 FDs with a bank for a tenure of 5 years each having an 8% fixed interest rate. Then, Rajesh’s interest income comes around Rs 12,000 each every year. This makes his interest income for a year about Rs 24,000. Considering now, the government has allowed up to Rs 40,000 TDS to be taxable, this means Rajesh can enjoy his entire interest income on FDs every year.

 

But if he made 2 FDs with a bank at Rs 3 lakh each for 5 years at 8% interest. This will hike his interest income to Rs 24,000 each. This would bring Rs 48,000 interest gains on Rajesh’s front from each, every year. From this only Rs 40,000 will be tax exempted remaining Rs 8,000 will be taxable. 

Claiming TDS and Filing Income Tax return 

While asking citizens to pay taxes, the government also gives a host of relief to taxpayers in way of income tax return (ITR) filing. You can claim your TDS by filing an ITR in two ways.

If your bank has deducted the TDS from your interest income on FDs, then you can declare the deducted amount in your ITR filing form and the IT department will automatically refund your paid sum in your bank account. 

Second medium would be more advisable. You can fill a form 15G and give it to your bank, and they will not deduct TDS on your interest income. This form is an aid to taxpayers when it comes to TDS, and is generally used as a request to IT department for not deducting any sum from their interest earned on FDs. Form 15G is a self-declaration by an individual.

Archit Gupta, Founder & CEO ClearTax said, “While TDS limit for interest earned from bank deposits is raised to Rs 40,000, such interest is still taxable and taxpayers will have to ensure timely submission of Form 15G to prevent TDS deduction if their total income is below taxable limit.”

Hence, from the above calculation it is sure, that new and small size depositors will be encouraged to invest in banks FDs. In case of TDS, well it is always advisable to file for your ITR or form 15G and lose nothing from your interest income.

Apart from new depositors, Kumar also gave thumbs up to PM Modi government reforms in Budget 2019. He said, “The Union Budget for FY 19-20 is growth oriented and forward looking in nature. The announcement of an Assured Income Support Scheme for Small and Marginal farmers is the most welcome step. Additionally, Interest Subvention announced for farmers pursuing Animal Husbandry and Fishery will provide a fillip to this sector. Raising the full tax rebate up to Rs 5 lacs will surely be welcomed by country’s emerging middle class. We believe, this will further strengthen the purchasing power of the growing middle class thereby providing a welcome fillip to the economy at large. Further, exemption of tax on second self-occupied house is likely to give further boost to the housing sector.”

Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.

TAGS:
Income tax return (ITR) filingBudget 2019Bank depositsFixed DepositITR FilingIncome Tax Return
Written By: Pooja Jaiswar
Updated: Mon, Feb 04, 2019
12:19 pm
Mumbai, ZeeBiz WebDesk
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